Marc Anley - SAUMA Conference 2019sauma.org/wp-content/uploads/2019/06/Marc-Anley... · • Policy used as collateral for loan • Difficulty in redeeming / cancelling products

SAUMA Conference

Financial Crime Risk Management

24 May 2019

2SAUMA Conference – 24 May 2019© 2019 Deloitte Touche Tohmatsu Limited

To cover today

What is Financial Crime?

Impact of Financial Crime

NLIWG Assessment


“What did you see?”

Deloitte Video – Will be loaded separately due to size


Overview of financial crime - Building blocks of financial crime

Money Laundering

Terrorist Financing

Economic and Trade

Sanctions

Internal & External

FraudMarket Abuse

Counter Proliferation

Financing

ID-Theft & Impersonation

fraud

Data Security and Privacy Cybercrime Bribery

Tax Evasion Insider Trading

Corruption Physical theft & robberies

Physical security breach

Cash heists


To cover today



NLIWG Assessment

6NLIWG: Risk Assessment of the Non-life Insurer industry to Money Laundering and Terrorist Financing© 2019 Deloitte Touche Tohmatsu Limited

The impact of financial crime


The impact of financial crime

Terrorism

Cyber Crime

Human & ChildTrafficking


To cover today



NLIWG Assessment


NLIWG project - Scope

Desk Top Research

Industry Workshop

Questionnaire

Risk Rationalisation

Risk Conclusion


High level considerations in the non life industry

Non-Life Insurance

Motor Property Agriculture Engineering Marine

Aviation Transport Rail Legal Expense Liability

Consumer Credit Trade Credit Guarantee Accident and Health Travel

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Cash based premiums

Claims fraud

Tax fraud Use of insured asset for illicit activities

Insurance of illegal product (e.g. Abalone, drugs)

Vessels and aircraft in sanctioned jurisdictions

Insurance of high value asset collections from illicit funds (e.g. classic vehicles)

Insuring transportation of illicit goods

Use of transportation for trafficking (Human, drugs..)

Broker commission fraud

FinCrime Risk ConsiderationsIncreases Risk Decreases Risk• Multiple parties to CIV in an insurance contract • Frequency of transactions• Reliance on intermediaries • Tenure of products• Policy used as collateral for loan • Difficulty in redeeming / cancelling products• Less levels of scrutiny and maturity in the insurance

sector• Limited cash acceptance. Premiums are often paid

from a bank account.• Lack of information on all related parties (e.g.

beneficiaries, premium payer)• Early redemption costs proportionally higher

• High value products• Frequency of client contact• Multiple hand-offs in flow of funds (via bank)


Risks that have been identified in the industry

INDICATORS § Application for businessoutside the policyholder’snormal pattern of business;

§ Obstacles to completeverification;

§ Unusual prepayment ofpremiums;

§ Applicant has insurancepolicies with several insurers

§ Application for businessoutside the policyholder’snormal pattern of business;

§ Policies requested exceed theclient’s apparent means;

§ Providing fictitious, falsifiedand/or minimal information.

MARKET STRUCTURE VULNERABILATIES

§ Lack of oversight/controloverintermediaries/agents;

§ Sale driven objectives;

§ Lack of awareness of risks;§ Lack of international scope

(eg: cargo insurance);

§ Lack of Customer DueDiligence (“CDD”)

§ Lack of payment controlsto third parties;

VULNERABILATIES

§ Large sums involved; § International nature;

§ Lack of international regulatory consistency;

§ Complex international structures;

REINSURANCE VULNERABILATIES

§ Complexity and diverse range of products;

§ Heavy reliance on intermediaries;

§ Legitimacy of insurer’s name and provision of apparent clean funds;

§ International nature of NL market (eg: commercial risks);

§ Criminal gaining control of unregulated insurance intermediaries.


Crimes which have been facilitated using non life products

Over Payment of Premiums: A method by which funds can belaundered is by arranging for excessive numbers or excessively highvalues of insurance reimbursements by cheque or wire transfer to bemade. In this method, the launderer may arrange for insurance oflegitimate assets and ‘accidentally’, but on a recurring basis,significantly overpay his premiums and request a refund for theexcess.

Intermediaries: Clients in several countries used the services of an intermediary to purchase insurance policies. Identification was taken by way of an ID card, but these details were unable to be clarified by the institution locally, which relied on intermediary to perform due diligence checks.

The policy was put in place and relevant payments were made by the intermediary to the local institution.

After a couple of months had elapsed, the institution received notification from the client stating that there was a change in circumstances, and they would have to close the policy suffering the losses but coming away with a clean cheque from the institution.

01

02


Crimes which have been facilitated using non life products (cont.)

Brokers: Four broking agencies were forced to freeze funds after US court action followed an investigation into Latin American drugs smuggling.

The funds frozen related to insurance money deposited at insurance brokers for around 50 aircraft.

The case highlighted the potential vulnerability of the insurance market to sophisticated and large scale drug trafficking and money laundering operators.

The court order froze aircraft insurance premiums taken out by 17 Colombian and Panamanian air cargo companies and by 9 individuals.

The American authorities led by the DEA swooped on an alleged Colombian drugs baron and tons of cocaine valued at many billions of dollars were seized and a massive cocaine processing factory located in Colombia together with aircraft valued at more than USD22 million were destroyed in the DEA coordinated action.

The cargo companies were responsible for shipping tons of cocaine from South to North America all through the 1980s and early 1990s, providing a link between the producers and the consumers of the drugs. Much of the cocaine flowing into the USA was transported into the country by air.

03


Crimes which have been facilitated using non life products (cont.)

Criminals are constantly trying to identify new ways in which to commit their crimes. Asingle transaction may not pose a risk, but a weak ecosystem, can lead to a series oftransactions which have a wider impact.

Staged Accidents and Manufactured Insurance ClaimsMultinational company in West Africa paid insurance premium for property and casualty risks of the equivalent of €8m to an insurance intermediary in Panama who then placed the risk through an intermediary based in Delaware, USA.

The risk passed to an intermediary in Switzerland who placed it through a broker in London, UK. The London broker then placed the risk with an insurer on a Caribbean island which had been established solely for the purpose of underwriting this transaction.

On the same day that the premium was paid, a claim was submitted equivalent to the amount of the premium less commission and was paid through the London broker to an individual in France.


Countries who do consider non-life insurance products a risk

1. Armenia 8. Egypt 13. Kingdom of Bahrain

20. Russia

2. Azerbaijan 9. Finland 14. Lithuania 21. San Marino

3. Bosnia and Herzegovina

10. France 15. The former Yugoslav Republic of Macedonia

22. Slovakia

4. Botswana 11. Georgia 16. Mauritius 23. Uganda

5. China 12. Ghana 17. Moldova 24. Ukraine

6. Croatia 13. India 18. Qatar

7. Cyprus 14. Italy 19. Romania


Countries who do not consider non-life insurance products a risk

AML/CFT Risk Assessments have been conducted for the above countries and the conclusion reached on the non life industry is either Low Risk or No Risk

1.Austria 6. Denmark 13. Latvia 19. Slovakia

2. Australia 8. Estonia 14. Lithuania 20. Slovenia

3. Belgium 9. European Union

15. Luxembourg

21. Spain

4. Bulgaria 10. Germany 16. Namibia 22. Sweden

5. Canada 11. Ireland 17. Netherlands

23. United Kingdom

6. CzechRepublic

12. Kenya 18. Portugal 24. United States of America


Some global perspectives

Brokers may be a

target for

corruption

Sanctions risks:

Ships – similar to

banking trade

finance

Planes - where do

they fly

General insurance

have reporting

obligations – due

to insurance

frauds

.

.

. .

Closed loop system

utilised for refunding

of overpayments

The typologies identified

don’t seem to be

common place

Issues and risks have been identified. However,

the impact is low and hence the conclusion of

the UK’s assessment


Product risk questionnaire validation

Question Question• Can refunds on the overpayment made to third parties • Can the product receive overpayment on the premiums

• Does the business offer transactions where the beneficiary/recipient is anonymous?

• Is the product linked to a high level of complexity that may obscure actual cash flows?

• Does the product allow for acceptance of payments made in cash?

• Does the business offer any products or services that are quick to execute (<1 day to <1 week) and which are not subject to lengthy product on-boarding processes?

• Does the product contract terms allow for a cooling-off period?

• Does the business offer products that have no limitation on non-verified third parties having access to the product?

• Does the product pay-out in a foreign jurisdiction and/or currency?

• Do any of the products or services, by way of product rules, not limit customer transactional behaviors? E.g.: transaction amounts, durations, frequencies, volumes, etc.?

• Does the product allow for receipts from another country and/or in another currency?

• Does the business offer direct investments and/ or endowment products or any combination thereof?

• Does the product allow for payments to third parties? • Are any of the products or services traded in secondary markets?• Where refunds are made on policies can they be processed

in other currencies• Does the product enable significant volumes of transactions to

occur rapidly?

• Does the business offer products that have client type restrictions (e.g. only for trusts, companies, individuals etc.)?

• Does the business continue to service legacy products that have been discontinued?

• Is the product a pure risk product and/or does the product place restrictions in relation to the payout/disinvestment, based on defined events realising?

• Does the business offer products that target high net worth individuals?

• Does the product allow for transferability of ownership without informing the insurer (includes cessions)?

• Where a product is cancelled is it possible to reroute the settlement transaction to a different account

• Can the product be used as collateral for a loan or other debt obligation?

• Does the business offer bearable instruments?

• Does the product allow for acceptance of ad-hoc or high value or unlimited payments.

© 2019. For information, contact Deloitte Touche Tohmatsu Limited 19

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Marc Anley - SAUMA Conference 2019sauma.org/wp-content/uploads/2019/06/Marc-Anley... · • Policy used as collateral for loan • Difficulty in redeeming / cancelling products